FITCH ASSIGNS KAZAKHSTAN TEMIR ZHOLY BOND 'BBB' EXPECTED RATING

/REUTERS, Fitch Ratings-London/Moscow-20 April 2006/: Fitch Ratings has today assigned Kazakhstan Temir Zholy Finance B.V's prospective USD- denominated unsecured bond issue an expected 'BBB' Senior Unsecured rating. The issuer is indirectly and ultimately owned by JSC Kazakhstan Temir Zholy ("KTZ"). KTZ is also a guarantor of the issuer's bond. KTZ's Issuer Default and Foreign Currency Senior Unsecured debt ratings are 'BBB'. The Outlook is Stable. The bond issue will be used initially to refinance the group's existing short-term debt and provide cash for future corporate requirements. The final rating is contingent upon receipt of final documentation in line with information already received by the agency. Draft bond document includes a limitation on the change in business and disposal of assets provisions. The former provision refers to KTZ and its subsidiaries at a minimum owning and operating Kazakhstan's national railway network and its relevant infrastructure as well as relevant network services (as defined in the bond documentation). The disposal of assets is restricted, and the disposal of defined "core assets" of the issuer and its consolidated guarantors is capped at up to 15% (since 31 December 2004) of the group's consolidated property, plant and equipment as shown in the most recent audited balance sheet. Guarantors, including "eligible transferees", can encompass guarantors of the bond who are not subsidiaries of KTZ but are engaged in the business of railway transportation in Kazakhstan and are controlled by the government of Kazakhstan. Currently, bond guarantors also include KTZ's wholly-owned subsidiaries, JSC Kazzheldortrans and JSC Lokomotiv. A provision for the redemption of the bond at the option of the bondholders can be triggered, upon the issuer ceasing to be a subsidiary of KTZ, KTZ ceasing to be controlled by the government of the Republic of Kazakhstan or any guarantor ceasing to be a subsidiary of KTZ or otherwise controlled by the government of Kazakhstan. The bond documentation has limited negative pledge provisions. The ratings of KTZ reflect its links with the state including the strategic nature of Kazakhstan's rail infrastructure to its economy, particularly given the country's terrain and importance of the commodities (oil, coal and ore) transported. The ratings also acknowledge the government's intention to retain the rail infrastructure assets and activities within KTZ during the reform process - a parliament vote is required to change this. In addition, the ratings consider the government's 100% ownership of KTZ and its strong representation on the group's board, its involvement in the group's finances given the state's (the anti- monopoly agency's) role in setting tariffs and past supportive statements from government representatives towards KTZ. Currently, KTZ's core activities span rail infrastructure, locomotive and wagon provider and related services. Over time, in accordance with the government's plans for liberalisation, certain activities will be on-sold to private operators. Already activities such as track repair and provision of tanker cars, and non-core telecommunications and customer clearance have been (or are to be) sold. At the end of the reform process, KTZ is expected to remain the main provider of rail infrastructure and hold a meaningful market share in providing locomotives and wagons for freight activities. KTZ's FY04 and FY05 profitability has reduced as government-approved increased tariffs have been late in their implementation and have not immediately compensated for ongoing increases in staff, materials and fuel costs. Furthermore, government grants for unprofitable passenger services have been delayed and are lower than attributable operating losses. Although freight rail income (the bulk of turnover and profits for the group) is now segmented into rail infrastructure, wagon and locomotive usage, and commercial work services charges, there is still a lack of transparency and consistency in the methodology to the anti-monopoly agency's treatment of tariff increases. This lack of endorsement for economic rationale, together with past examples of political interference, is of concern to this rating. Contacts: John Hatton, London, Tel: +44 (0) 20 7417 4283; Nikolai Lukashevich, Moscow, Tel: +7 495 956 9968. Media Relations: Alex Clelland, London, Tel: +44 20 7862 4084. [2006-04-20]